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In investing, make sure that “you do you”
It happens every time. The “headline” stock indexes like the S&P 500, Dow and Nasdaq NDAQ -0.3% fly higher for months. The longer the party continues, the more that the market’s most speculative elements deliver amazing returns. SPACs, emerging game-changing industries, and IPOs lead a blistering campaign to pump up investor enthusiasm.
Everyone wants in. Some of your friends probably do. And it’s easy to tell. Because they brag about their biggest winners, and “hottest” stock picks every time you talk to them. That’s not my investment experience talking, that’s 56 years of being a human talking!
Maybe you have gotten a piece of this. Or, maybe you didn’t, and have a case of FOMO (Fear of Missing Out). Some in my field will tell you that you should care about that, and do something about it. Instead, here’s what to tell your friends.
A quick lesson from Rudy the Rabbit
Tell them the same thing that Bill Murray told a group of geeky summer campers in the movie classic “Meatballs”: IT JUST DOESN’T MATTER!
It just doesn’t matter because investing is not a sport. Take that from a guy who never misses an opportunity to include a sports analogy in his investing columns.
Investing is a means to an end. And the stock market is not the end. It’s the means to that end. What’s the end? Whatever you want to get out of life, that can be funded by what you accumulate in your investment portfolio. In other words, I can pursue the type of empty-nester lifestyle my wife and I desire. But I can’t grow my hair back. At least, there’s no stock or bond investment that will do that for me.
This is the time in every market cycle where, predictably, people lose track of THE number one thing they must not forget: what their true investment objectives are. The surest way to take yourself from on-track to financial regret, is to let environments like this, and other people’s stories of stock market conquest, impact what you do with your hard-earned wealth.
Don’t be a meatball, or a meat head
In other words, you do you. That does not mean you can’t try to seek out the next super-mover industry, or try to catch lightening in a stock bottle, so to speak. Just make sure you do so in a way that puts investment speculation and, dare I say, investment gamesmanship, it’s their proper perspective. Too much of a sexy investment thing is dangerous.
I have been managing investor assets since the 1990s. I have not seen it all, but I’ve seen a lot. That includes a lot of periods like this, and a lot of FOMO.
There are ways to try to get a piece of the stock market obsession du jour. Importantly, if you pursue this, you want to do so without courting the type of risk that can unwind years of hard work and investing.
Let’s get Tactical?
You can consider satisfying your inner FOMO by devoting a portion of your portfolio to what I call “Tactical” investments. These are typically positions in ETFs that represent a slice of the market. That slice could target an area that you think has high price appreciation potential, but that potential may be fleeting.
Perhaps the price move you aim to participate in will occur over a few months’ time, or even a few weeks’ time. In other words, this is the opposite of a long-term investment. However, it’s not a day-trade either.
If you partake, do so in moderation
So, if you do try to include “catching the wave” of what’s currently popular in the stock market, take a cue from healthy eaters. Do so in moderation. And, do so in a way that allows you to track that piece of your Tactical portfolio apart from the “bread-and-butter” portion of your investment efforts.
Finally, I think that many investors have these types of investments in their portfolios already, but don’t realize it. Especially if they invest in ETFs and mutual funds, it takes some research to analyze what you own.
That is always worth the effort. It is especially important to help you avoid over-allocating your wealth to more volatile investments, simply because you didn’t look through what is in those funds.